Forum Replies Created
What are you trying to achieve?
If the property is a long term holder I would go the concrete option – less maintenance, harder wearing, fewer weeds etc etc.
If you are doing a quick fix up with appeal I would go stone option. IMO less practical in a rental but attractive.
You also need to consider what sort of traffic will use the side access – wheeled tools (wheelbarrows, lawn mowers etc) would suggest concrete is a better option.
gus123 wrote:I would suggest meeting with a good broker
Im halfway there, I met a broker, but even with my limited knowledge of structuring I feel like he doesnt grasp the ideas. Hes a disciple of the negative gearing strategy above all else which I think has limited benefit for someone in my income bracket. I think its time to broaden my search.
If you are frustrated by your broker at this early stage I would contend this broker is not for you. There are a few brokers who are regulars on this forum and who often give good advice to forumites. They would be a good place to look next – and don't be fearful of their possible distance from you. Modern technology and good customer service overcome the tyranny of distance each and every time.
Your incomes, while not low, do limit, to a certain extent, any negative gearing benefits you may have.
gus123 wrote:determining if serviceability or security is the hurdle
This is a great point and I guess thats where I need to look now. When you say security do you mean that banks prefer certain types of security or are you simply referring to the LVR and potential growth? My outlook thus far has been to get something that is minimally negatively geared with the aim of positive returns in the medium term. How would my situation RE financing impact this? I guess my question is how do I determine which is my hurdle?
Bit of both in my response – looking at the type of property but more importantly looking at your existing LVR and accessible equity levels.
If you grab another 'cookie cutter' property you'll consume a reasonable amount of your available security at which point in time you'll need to sit on your hands waiting for the market to move. By comparison some value adding strategy may alleviate this matter to some degree.
Have a good chat with a broker and they should be able to provide you with some possible scenarios if you bought something with lower/higher rent returns and/or at market value or above.
A lot of people focus on property selection and overlook the needs of their finances. Borrowing money is fundamental to property investment and if you keep this in mind as you move along the continuum then you will improve your chances of success.
Hope this helps
Hi Woga,
Just reading back through some of the earlier posts and there are a number of contacts listed that may be of use to you. While the posts may be a little old you'll probably find the email/website still active.
Hi Gus,
IMO – you need to look at the whole picture.
You have some accessible equity in your existing portfolio. Going to 90% LVR will release around $54K (less costs). While $54K is reasonable it is not a huge sum of money in property investing land.
You haven't indicated what sort of income you are on.
These two aspects of your situation are important as lenders will consider both before lending you money.
From my perspective I would suggest meeting with a good broker and working out what your current lending position is and then determining if serviceability or security is the hurdle you will face first.
If the answer is security then you should look at a property with capacity to value add – if it is serviceability then look at an income producing investment.
Hi Jewel,
Sounds like you have done a lot of work – well done.
Have you obtained an indicative value for the property once the work is completed? While it sounds as if you have done a lot of the preparatory work you do need to have some idea about what profits & rental increases you will achieve with the work you intend to do.
Maybe set yourself an improvement target as a benchmark. This could be something as simple as we want to double our investment – that is spend $20K and improve value by $40K. As I said earlier I am not a renovator so I am not sure what is considered reasonable.. Maybe some of the more regular renovators can provide some guidance for you.
Having said that bear in mind you are starting out so you may not be able to achieve the lofty heights others manage to achieve but, you have to start somewhere.
The only other comment I would make is that I do recall renovating our home (come investment property) many years ago and one thing led to another and before long we had pretty much 'touched' everything in the house at some stage. What was financially profitable, a waste of time or neutral I have no idea.
Hope this helps.
PS I'll paint yours if you paint my Melb place.
Keep it simple.
The first property may still be CGT exempt if it started out as a home – there is a 6 year CGT exemption that may apply in your friend's situation.
Generally speaking companies are not a good holding entity for property as you are not eligible for ant CGT discount and all profits are taxed at the company rate.
Trusts have some advantages, particularly if your friend works in an occupation where she is extremely exposed to possible litigation.
I would seek some legal advice so she can work out which is the best entity to continue her investment journey in. Certainly it sounds like she has a great asset base to launch from.
I am amazed at the 'gutsiness' of some of these people. Must admit my mind never drifts into these zones.
Hi Jewel,
Look I am the first to admit I am not a renovater so take what I say with a grain of salt.
I suggest you slow down a little. While some people are very successful at renovations there are others who fall over through poor research, over capitalising their reno and not getting the return they thought, bad buying and so on.
By your own admission "We have found a unit we would like to buy but it is a bit of a fixer upper. We have never renovated anything on our life!"
For what it is worth now is the time to look at the whole picture before you leap off the renovation cliff.
What skills do you have?
How are you researching an area?
Why this property?
What improvements do you intend making to this property?
How much will they cost?
What improvement to property value will this realise?
How long will it take to do the work?
Can you sustain this property without tenants for this length of time?
Will you do it all yourself?
Hire tradies?
As I said from the outset I am not a renovator but these are some of the questions I would be asking myself.
Maybe give the forum an indication of the nature of the work you see being involved in tis fixer upper. Might help with some of their comments.
Hi Todd,
When the report is written up it will apportion the first years deductions over the balance of the year remaining, then the next 39 years (assuming the property is bought brand new) and the final year relfects the balance of days remaining.
In effect assume the property settles on June 1 you'll have i month depreciation claims in year 1, then 39 years of claims and finally 11 months in the final year. The interesting things is that some items will be classified as low asset value and their total value can be claimed in the first year (or balance thereof).
There are some financial advantages to settle late in the financial year – having said that it really is only small change compared to the bigger picture and your investment decisions should not be made to get a few extra dollars in depreciation claims.
HI YU,
When calculating your capacity to borrow money the bank looks at you from two aspects. What your security level is and whether or not you can service the loan.
LOCs have a number of advantages but there is also a disadvantage to them.
When looking at your serviceability the bank will consider your LOC fully drawn and if your annual interest bill (assumption being LOC is fully drawn) is $10K then this added to your loan commitments. Doesn't really matter if the LOC is sitting there untouched.
At the same time the bank will consider your LOC limit when assessing your toal debt levels. If you have a $200K LOC then the bank will use this figure when looking at your overall debt levels. Once again it doesn't matter if you haven't drawn anything from your LOC.
Lets assume for one minute you are buying an investment property worth $400K.
When assessing your situation the bank will factor in some rental income (which helps your serviceability).
When you set up a LOC the debt is entirely carried by your existing income. In effect you have increased your debt level but there is no commensurate increase in rental income – this in turn has a negative effect on your overall serviceability.
This is the challenge of setting up LOCs – create a very large LOC and you blow your serviceability and LVR out the window. Setting up & extending LOCs is something that needs to be approached strategically. Get the balance wrong and you hold yourself back.
As an aside banks, as a rule of thumb, are reluctant to set up large LOCs without due reason. This is something you'll need to discuss with your broker.
The rate you are going you'll soon be able to set yourself up as a broker.
Saw something similar on the Gold Coast a few years ago. Mind you not to the same extent.
Old set of units on the Broadwater with brand new units surround in the shape of the letter U . Ended up with carpark on one side, pool on the other and the units across the front.
HI YU,
Not a broker so i'll leave the DSR question to those more qualified than I.
LVR – LOCs are included in your overall LVR. So in your example your LVR is 80% secured by PPOR. Your LVR secured by IP is also 80%. Gives you an overall LVT of 80%. I find it best to work LVR based on your security position – this lets you know if you have any spare equity to release.
LOCs – have also seen them referred to as equity loans.
LOC Repayments – when calculating DSR banks will use the LOC limit and not just what you have drawn. A bit like a credit card banks are risk averse and will assume you blow the lot when calculating DSR.
Cheers
What results are you trying to achieve with your purchase?
My understanding is that apartments in Melbourne were getting close to over-supply. Not sure if the market has changed that much in more recent months but you would need to do further research on this aspect of your decision.
Certainly the Darwin market is reported to be at an interesting phase with a lot of mining activity feeding the property market. Seem to recall reading an article in recent weeks which suggest that the mining investment in NT was second only to WA. Someone might be able to find the article.
You'll find insurance premiums in Darwin to be higher than down south and you are investing into a smaller, albeit growing market.
As a rule of thumb apartments tend to have higher body corporate costs, particularly if there is a lift in the building. You will also find that rental returns (in $ terms) and growth rates will track the performance of other properties in the building.
Serviced apartments are not considered a standard residential loan and therefore financing these becomes a little bit more difficult. You may find you'll need to provide a larger deposit for any purchase made and as a consequence the number of potential buyers diminishes which, in turn, suppresses capital growth rates.
Hope this helps.
A few points JayT.
I don't know PREI – so my comments are general in nature rather than aimed at PREI.
1. If you are going to use a mentoring program make sure it fits your needs rather you being moulded to fit their needs. There is a huge difference between true mentoring and pseudo-mentoring.
2. I noticed you said you were, "quite impressed" – be interested to see if you have other similar experiences to compare PREI with?
3. Agree with Mystery – you are a long time retired. While it sounds very exciting at a young age there is a need for mental stimulation and challenge.
Hope this helps.
santh wrote:Hi, I am looking at the new 1×1 apartments up in South Hedland that are on the market for $599,000. They are advertised as being able to rent for $1300 a month which is a yield of 11.1%I am obviously a little cautious and want to know why these deals aren't being snapped up by investors when it sounds like an easy way to get a CF+ property.
Any insight or opinions would be appreciated.
Regards
Hi Santh,
You'll need to do lots of research on these the Hedland market has shifted a lot in recent months. Council has major rezoning plans on the drawing board.
You are better off in Perth IMO.
Being dedicated student accommodation will, probably mean your normal lending rules go out the window. You'll probably be looking at lower LVRs as minimum.
Geez – if I was the vendor of that property I would not be too impressed to hear the agent has not returned your call.
Some agents are very good and earn every cent they get paid. They work extremely hard for their vendors.
Then there are agents who can only sell properties that sell themselves.
I can see rents going up with the increased costs.
I wonder how widespread the 'lack of security' perception by tenants really is. I cannot recall any of my tenants specifically requesting extra security.
Sounds like some knee jerk reactions going on at all levels of government and not just confined to a state level either. I like it how noisy interest groups can pull the chain of various ministers.
Hi Bob,
Not sure what sums of money you are looking at but you may wish to consider the Anti-Money Laundering and Counter-Terrorism Financing Act (2006).
This Act has a number of 'reporting' requirements that may impact on what you are planning to do.
I think it was Malcolm Fraser who suggested placing your hard earned under a mattress might be the way to go.
Have you had discussions regarding finance?
Recommend you get a really good broker on board asap to run your numbers, make recommendations and to liaise with banks on your behalf.
Part of your DD period should include address the question of finance.
